What is a Demand Response Program?

Demand Response (DR) is a program where customers can receive incentives to reduce their electricity consumption during peak hours. Peak hours are typically when the electricity grid is under the most stress and reducing demand can help avoid blackouts or brownouts. There are two types of DR programs: voluntary and mandatory. Voluntary programs allow customers to choose when to reduce their electricity consumption, while mandatory programs require customers to reduce their electricity consumption during peak hours.

In times of high electricity demand, utilities may need to call on customers to reduce their energy use. This is where an electricity demand response program comes in. Through these programs, customers can agree to reduce their energy use when the utility requests it, often in return for a financial incentive.

DR programs are becoming increasingly popular as one potential solution for solving the strain on electricity grids. By incentivizing consumers to use less energy or shift their usage away from peak hours, demand response programs have been demonstrated to reduce the amount of time that infrastructure needs to be maintained for.  If these programs can be scaled up, they may prove to be an effective way of managing power distribution without investing in costly infrastructure upgrades.

Demand Response Programs in Texas

ERCOT, the Electric Reliability Counsel of Texas, runs a robust Demand Response program.  They see it as a key element in maintaining grid stability and ensuring proper supply/demand balance in the market.   Demand response is a type of Responsive Reserve Service, Response Reserve Services fall under the umbrella of Ancillary Services within the ERCOT infrastructure. Ancillary Serves are a suite of resources ERCOT can call up in its day-to-day operations to maintain grid stability or in emergency situations to rapidly bring grid supply and demand back into balance.

Commercial and Small Business Demand Response Programs in Texas

Retail electric providers such as Direct Energy facilitate participation in DR programs for their small business and larger commercial electricity customers.

To participate in a demand response program, business customers must obviously have some flexibility in how and when they use their electricity.  Participation requires the ability to reduce electricity demand within either 10 minutes or within 30 minutes.   They must be able to reduce their demand by at least 100 kW during a DR event.  This demand reduction can be spread out among multiple locations if the business operates in multiple locations.

Compensation in a demand response program is based on the amount of reduction from the typical baseline load for a customer.  Customers can participate by selling their DR capacity in the day-ahead electricity market or by entering into longer term fixed rate contracts.

A business must also register as a Load Resource with ERCOT and install special equipment including an under-frequency relay (UFR).

Residential Demand Response Programs in Texas

Residential demand response programs have not caught on in Texas yet.  Residential electricity usage makes up the bulk of the demand for electricity during peak times such as during the summer.  Those, large scale DR program in Texas represents a large untapped tool that could help ERCOT in maintaining grid balance during peak demand.  Right now, ERCOT relies largely on calls for voluntary reduction during peak demand events.  Voluntary demand response can be effective but could be made much more effective if a financial incentive were involved.